Safe Harbor Election for Small Taxpayers

[Rick112]

I had a new roof put on a rental property in May 2020 which cost $8415.  I know you cannot use Section 179 or Special Depreciation Bonus but what about the Safe Harbor Election for Small Taxpayers ?  Under the annual elections questions it ask if you made improvements to residential rental in 2020.  I answered yes to the question.  On the next screen it describes an annual election for improvements.  I answered yes to both questions because all the conditions apply to me since the new roof was under $10,000 and everything else applied to me also.  Under the help screen for election for improvements on this same screen it says that this election is called the Safe Harbor Election for Small Taxpayers.  But then I read in other answers in the help forum of TurboTax from other customers who installed a new roof for residential rental property that it can only be depreciated for 27 1/2 years and the IRS is strict on this.  So can I use the Safe Harbor Election for Small Taxpayers or do I have to depreciate over 27 1/2 years ?  Also, if I can use the Safe Harbor Election for Small Taxpayers do I put the expenses of the new roof on Schedule E under Other Expenses line 19 and note there that I'm taking this Election for a new roof ?  I am using TurboTax Home and Business 2020 version.  Thank You.

[Anonymous_]

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@Rick112 wrote:

.....if I can use the Safe Harbor Election for Small Taxpayers do I put the expenses of the new roof on Schedule E under Other Expenses line 19 and note there that I'm taking this Election for a new roof ? .

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Yes, enter the expense under Other expenses and include the requisite statement.

See https://www.irs.gov/businesses/small-businesses-self-employed/tangible-property-final-regulations#Sa...

[Rick112]

So you are saying the IRS will allow me to use the Safe Harbor Election for Small Taxpayers for a new roof put on a rental property in May 2020 ?   Then the answers I'm seeing on the TurboTax forum asking the same question for a new roof installed on a rental property is incorrect.  The reply they got to the question is that you cannot and the IRS is strict on this.   My total expenses including the new roof is less than $10,000.  Thank You.

[Anonymous_]

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@Rick112 wrote:

So you are saying the IRS will allow me to use the Safe Harbor Election for Small Taxpayers for a new roof put on a rental property in May 2020 ? 

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Yes. Did you read the information on the IRS web site to which I linked in my previous post?

Many owners will not qualify for this particular safe harbor as a result of the low dollar figures:

The total amount paid during the taxable year for repairs, maintenance, improvements, or similar activities performed on such building property doesn't exceed the lesser of-

• Two percent of the unadjusted basis of the eligible building property; or
• $10,000 

[Anonymous_]

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@Rick112 wrote:

.....the answers I'm seeing on the TurboTax forum asking the same question for a new roof installed on a rental property is incorrect. 

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That would be due to the fact that there is more than one safe harbor and many of the answers are addressing the de minimis safe harbor.

See https://www.irs.gov/businesses/small-businesses-self-employed/tangible-property-final-regulations

[Rick112]

Yes, I read the information on the IRS website link that you sent to me and it confirms what the TurboTax software says.  I was just confused when I saw the exact same question on the TurboTax forum and they said no you can't and the IRS is strict about this.  You mentioned in your previous reply that some people will not be able to use the Safe Harbor Election for Small Taxpayers because of low dollar figures.  My total figures for the new roof and for yearly repairs and maintenance is $9214.00 which is below the $10,000 max that the IRS will allow for this election.  So if I only have $3971 in capital improvements including repairs and maintenance on another rental property that I have then I cannot use this election ?  It's too high for the other election that you mentioned before because that has a max of $2500.  Thanks You.

[Anonymous_]

You can use the election for each property, assuming the dollar figures are not exceeded on each one.

Note that the dollar figure is the lesser of $10,000 or 2% of the unadjusted basis of the building property (as shown in the previous post). So, for example, if the building property has an unadjusted basis (presumably the cost to purchase) of $400,000, 2% would be $8,000.